The IMF publishes its COFER report of official reserve holdings at the end of the quarter for the proceeding quarter. Q1 data was released today. In percentage terms, the US dollar's share slipped to 60.7% of the allocated reserves, down from 61.5% in Q4 10 (61.8% in Q1 10). Contrary to some market talk, the yen's share did not increase an…

The European debt crisis has commanded investors' attention. The yen appears to have been largely sidelined. The dollar has been confined to exceptionally narrow trading ranges against the yen and 3-month implied volatility has ground lower and now is within striking distance (within 0.5%) of the multi-year low set just before the earthquake s…

Tankan and Beyond
Reviewed by Marc Chandler
on
June 30, 2011
Rating: 5

As had been anticipated, the Greece parliament approved the austerity measures along party lines.That it had been anticipated in the currency market is evident in the euro's appreciation in recent days from almost $1.41 on Monday to almost $1.4450 today. The peripheral bonds have also rallied over the past 36 hours. As we warned, the euro is v…

(This is an update from this post.) As the Q2 winds down, it may be useful to review the recent correlations between some of the major currencies and the US S&P 500. The correlation calculations are conducted on the basis of percentage change of the currency and the S&P 500. What follows are the highlights.

When it comes to heading up the IMF, the French position is that Largarde should be supported not because of her nationality, but because of her experience. Fair enough. Mexico, now joined by Chile, Peru, Australia and Canada seem to be making the same case for Carstens. The three countries with the most votes (US, Japan and China) have not tipp…

Greece and the French Proposal
Reviewed by Marc Chandler
on
June 27, 2011
Rating: 5

New earlier this month that Moody's was placing 3 French banks on review for a possible downgrade renewed investors focus on the potential contagion through US money markets. It appears that European banks secured dollar funding through issuance of commercial paper and other short-term instruments that US money market funds purchase. Fitch esti…

US Money Markets--Another Channel of Contagion
Reviewed by Marc Chandler
on
June 27, 2011
Rating: 5

The last few days have been very significant and will likely shape investors views in the weeks ahead. While Greece remains at the epicenter of the European debt crisis, the issue is much bigger. It has begun bleeding over not just into Ireland and Portugal, but Spain and Italy as well.

Some Thoughts on Europe
Reviewed by Marc Chandler
on
June 24, 2011
Rating: 5

Many seasoned observers exaggerate China. Some do it to demonize it; others to celebrate it. They speak of China as the factory of the world when it is really an assembler rather than producer. Recognizing its $3 trillion of reserves (and growing), we are told that China is the banker of the world, yet its financial system is fragile. In fact this…

The ebb and flow of reacting to headlines over the Greek crisis appears to be largely dictating the ebb and flow of the capital markets. It may come to a head on Tuesday as the government, fresh from a modest reshuffling to appease the coalition that makes up the socialist party, tries to jam through its new austerity program. The approval of the a…

EMU May Not Be Cooked in Greece
Reviewed by Marc Chandler
on
June 20, 2011
Rating: 5

The Depository Trust and Clearing Corp provides a central register for credit default. A recent report indicated that there are about $5 bln of outstanding Greek sovereign CDS. Greek debt in dollar terms is about $483 bln, meaning the CDS covers about 1% of Greece's sovereign debt. This is considerably smaller than one might suspect. The size …

It looks bleak. The European debt crisis has pushed peripheral yields, premiums and credit default swap prices to new highs. The situation looks intractable. And now on top of the dire situation, the political backlash in Greece is forcing a change of government. The brinkmanship game ends when some one blinks and one of the reasons why so many ar…

Darkest before the Dawn
Reviewed by Marc Chandler
on
June 16, 2011
Rating: 5

﻿ ﻿ The devolution of the Greek financial crisis into a political crisis is the main focus. There have been signs of contagion through the euro zone. However, even if the situation in Greece was not deteriorating, developments in Ireland would draw investor interest. The new Irish government has been in office for 100 days. Its position on bank bo…

Greece is in the Cross Hairs, but Don't Forget About Ireland
Reviewed by Marc Chandler
on
June 16, 2011
Rating: 5

The euro suffered its biggest decline in six weeks as the financial crisis in Greece is (finally) creating a political crisis. Many in the market were caught leaning the wrong way on Wed, expecting the euro bounce beginning in Europe and Monday and continued Tuesday, to see some follow through. This seemed to serve to exacerbate the euro's s…

Greek Developments and the Euro
Reviewed by Marc Chandler
on
June 15, 2011
Rating: 5

The June 14 meeting of European finance ministers did not resolve the dispute that is splitting the euro zone. This outcome is hardly surprising. The logic of brinkmanship tactics say it is too early to blink and in this environment, the euro looks particularly vulnerable.
One one side is of the game is Germany, Austria, Finland and the Netherla…

What Brinkmanship Means
Reviewed by Marc Chandler
on
June 14, 2011
Rating: 5

There are so many moving parts in the European debt crisis, it is difficult to keep track of them all. Der Spiegel reminds us today of another stake holder that might have slipped by most observers and that is the German Federal Constitutional Court. A hearing early next month (July 5th) to hear complaints that the year-old Greek aid package viola…

Another Stakeholder in Europe
Reviewed by Marc Chandler
on
June 14, 2011
Rating: 5

There were big moves in the foreign exchange market on Monday, but little in the way of fresh developments. The euro bounced smartly off the 1.4300 area and was back above the $1.44 area by midday in North America. This despite S&P slash of Greece's sovereign rating to CCC from B and a blowing out of peripheral spreads against Germany an…

Buying $600 bln worth of US Treasuries, the Federal Reserve has flooded the market with liquidity and driven up asset and commodity prices. Its Treasury purchases reduce the quantity of risk free assets, forcing investors to buy riskier assets. Commodities are among those risky assets. By monetizing the debt, the Federal Reserve is debasing paper …

US household net worth rose 1.7% in Q1, according to the flow of funds report just out. This is a net figure. It is the household assets minus liabilities. In Q1, household equity and pension funds increased in value and this offset the decline in real estate. The increase in household net worth was modest in percentage terms, it rose $943 bln i…

Various news wires are reporting leaks of the IMF/EU/ECB review of Greece. Apparently they are concluding that the implementation of the conditions for last year's aid package have ground to a halt. They are also concluding that the Greece economy is weaker than they had previously thought. Earlier they had assumed Greece would contract 3.5% t…

The US dollar is largely within yesterday's trading ranges against the major currencies ahead of Trichet's press conference. The big moves are in the antipodean currencies where softer than expected employment data has weighed on the Australian dollar, while a somewhat more confident New Zealand central bank sent the kiwi more than 1% hig…

German Finance Minister Schauble has written a letter earlier this week to the ECB, IMF and euro zone finance ministers that appears to be putting the proverbial cat among the pigeons. The latter has been leaked to the press. He seems to be tacking a course that runs into direct opposition to the ECB, IMF and France. Until recently Schauble seemed …

Is Schauble Calling for Restructuring or Posturing?
Reviewed by Marc Chandler
on
June 08, 2011
Rating: 5

The US dollar is mostly firmer, though the yen is a notable exception, amid position squaring. Global equities are lower on growth concerns and the failure of the US markets yesterday, which extended the losing streak in S&P 500 to the fifth consecutive session. Growth concerns also seem to be weighing on commodity prices and emerging marke…

The US dollar has given the gains scored in North America yesterday. New highs for the move was recorded in the euro for the advance. Sterling was first sold through yesterday's lows on soft BRC sales, but then recovered to trade through yesterday's high. After nearing $1.6475 sterling pulled back half a cent. Still, in bigger picture…

Many people in the market have concluded that new Greek aid is a done deal. The EU/IMF/ECB concluded their review before the weekend and it is expected to lead to Greece being able to draw down its next tranche of aid under the existing program. This in turn augers well for the second aid package, the one that just a few hours ago a German officia…

The recent string of US economic data has been simply dreadful. Estimates for growth are being revised down. The Federal Reserve’s purchases of Treasuries, under what has been dubbed QEII, are coming to an end in a few weeks. The discord that is preventing raising the debt ceiling reflects disagreements over the pace of fiscal consolidation. It is…

The US dollar briefly extended its pre-weekend decline, but has settled into a consolildative tone. Additional modest dollar gains may be seen in North America, but selling into bounces is likely to dominate as a full blown crisis in Europe is avoided for the time being and this allows near-term focus to shift back to weakness of the US economy a…

The debt crisis in Europe is having political ramifications. Ireland elected a new government earlier this year and Portugal will do so this weekend. The latest polls suggest the most likely outcome is a coalition government between the Social Democrats and the People's Party. The crisis renders party platforms nearly irrelevant. The terms of …

The US dollar is largely in a consolidative mode ahead of the US jobs data, service ISM and more developments from Greece, where as noted previously in this space, European officials drove the situation to the edge of the abyss and now are pulling back. The euro zone service PMI came in a t 56.0, which represents an improvement over the 55.4 flash …

The main development today has been the full recovery of the euro from yesterday's North American slide, which was in part fueled by Moody's rating slash of Greece. The euro recovered through Asia and then accelerated in a holiday-thin (Ascension Day) European session. A relatively healthy reception at a Spanish bond auction and reports …

Japan Prime Minister Kan faces a vote of confidence as early as tomorrow. It will not cause a split in the Democrat Party of Japan (DPJ). It is a reflection of that split, begun over the ousting of former power broker Ozawa from the DPJ over financing scandal. The DPJ have been divided since this has undermined the government's ability to resp…

The US dollar is mixed. The euro is consolidating its recent gains, despite softer PMI data. The UK reported a much weaker than expected PMI data and sterling dropped a cent after earlier testing $1.65. Switzerland reported stronger PMI and retail sales data and this offset the impact of yesterday's somewhat soft Q1 GDP report.